Canada’s Competition Bureau is urging the federal government to allow for up to 100 per cent foreign ownership of domestic-only airlines as a way to spur more competition in the industry.
The recommendation is one of several made by the Competition Bureau in a new study looking at Canada’s aviation industry, with the watchdog suggesting changes to the “highly concentrated” market.
“With the right policy changes, governments can create the conditions for new airlines to grow and compete – and give Canadians access to more affordable, reliable options for flights,” Matthew Boswell, commissioner of competition, said in a statement.
Among the suggestions is to create a new class of airline that operates only in Canada but allows for owners to be from outside the country, with up to 100 per cent ownership, which it says would allow domestic aviation to benefit from “greater global expertise and capital.”
The watchdog also recommends changing Canada’s current single-investor foreign ownership limit, currently set at 25 per cent, up to 49 per cent.
“The key finding from our report is that there is a need for more capital and that it needs to come from foreign sources,” a senior Competition Bureau official told reporters in a technical briefing on Thursday.
“It’s something that we think is needed in order to bring more competition into this space.”
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The report says foreign investment would improve access to capital and drive growth.
That capital could be important for new airlines hoping to gain a foothold in Canada, as the study found that those who recently entered the market say foreign investment is “critical” for them to launch and stay in the air.
According to the bureau, adding just one extra competitor to a route can reduce airfares by about nine per cent.
The study outlined various challenges faced by both airlines and travellers, noting that airlines are struggling to enter the market, stay in business and grow, while passengers face higher costs and complex flight bookings.
Competition Bureau officials told reporters that it’s not just prices that could lower, saying that even the threat of competition can push other airlines to improve their service.
The study says while airlines like Flair and Porter have succeeded and are expanding their services, others, like Lynx Air, have exited, with market concentration remaining “extremely high” and competition from new entrants “fragile.”
At major airports, Air Canada and WestJet account for roughly 56 to 78 per cent of all domestic passenger traffic.
“A concentrated market has few, large airlines,” the report says. “They face less pressure to offer passengers a good deal because travellers have few choices.”
The report also says the federal government should remove barriers that prevent smaller airports from competing with major hubs for international flights.
Currently, international flight exclusivity clauses prevent more than one airport in a local area from hosting international flights, often restricting them to a major hub airport.
“Removing these restrictions would enable secondary airports to respond to market opportunities,” the study found. “Passengers, workers, and airlines would then have more options.”
The watchdog also says a national working group should be established to focus on higher-quality and more accessible services to remote regions.
The report also says the minister of transport should no longer be able to override the federal review process and allow deals to move forward that have been deemed anti-competitive.
Over the past 20 months, four low-cost carriers have disappeared from the skies, as Lynx Air and Canada Jetlines shut down and WestJet folded subsidiary Swoop and the recently acquired Sunwing Airlines into its mainline service.
— with files from The Canadian Press
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